Recently, both the Canadian federal and Alberta provincial governments have decided to implement a carbon tax. They have marketed it based on supposed environmental benefits, whilst ignoring the financial implications.

First: carbon taxes do not work to reduce emissions. There has already been one implemented in other jurisdictions, notably British Columbia, and their emissions have not decreased. In fact, they have increased despite having one. This is because elasticity for the products that produce emissions is very low (namely: fuel, home heating, and power), and is entirely expected as people are very unlikely to want to freeze, stop driving, or using power just to avoid this tax. Further, even if people did, it increases the cost of other things that are considered absolute essentials, such as food (due to an increase in the cost of fertiliser, and transport from farm to shop.)

Furthermore, even if they did reduce emissions, our emissions are only 1.65% of world’s, of which 0.13% is from the Alberta oil sands. Any decrease (even if one was made) will be wiped out by other large emitters, namely, the Americans (where this is entirely off the cards under President-elect Trump), and the Chinese (which are unlikely to cooperate due to the lack of commitment from the Americans).  

This, of course, is saying nothing of the massive cost this tax will have on the economy. The Alberta government’s own analysis has shown that this will cost jobs and lower both household income and GDP by billions. This cost has been estimated to be $4 billion, a deadweight loss that is entirely avoidable. This number, in my opinion, is likely to be even higher, based on the evidence that drilling in the oil and gas industry is up in Saskatchewan (where such a tax is not only not being implemented, it is being fought), and down in Alberta. Nationwide, this diversion of investment funds and economic activity to jurisdictions that do not have this tax will cost our economy tens of billions.

The tax has no democratic basis either. In a recent poll of Albertans, 67% (or over two-thirds) do not want this tax, a number you can expect to rise once it is actually being collected. The tax was also not mentioned in the NDP’s election platform during the provincial election last year. If they were so confident that the population really wanted one, surely, a referendum would not only validate this belief, it would be a mandate to implement one. As for the one planned by the federal government, they had promised to work with the provinces on energy/climate policy, rather than unilaterally forcing a tax onto the provinces, some of which heavily oppose this plan.

Finally, whilst a carbon tax may raise revenues, it also has long term growth implications. There is a massive opportunity cost of this tax, due to lower rates of return being realized from investment activities in the province. These investments are not only in the natural resource sector; this tax will affect any industry that requires inputs that are subject to the carbon tax, namely, manufacturing, agriculture, transport and construction. This results in a diversion of investment activity to places where rates of return are higher (read: jurisdictions not subject to this tax.)

Therefore, a more sensible solution is to scrap the carbon tax at all levels of government. Focus instead on balancing the budget while growing the economy in a financially sustainable way. Growing the economy with the help, rather than the opposition, of the private sector and the people of this province. This will lead to more long-term growth, which will leave the economy better in the long run, for future generations to enjoy the prosperity that has made Alberta, and Canada, one of the best places to live and work. 

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Justin Vung – Campus Coordinator, University of Alberta

email: ualberta@generationscrewed.ca